Things You Need To Know Part 2

If you take the Sales Price of any house and divide it by its number of square feet, you would get the price per square foot for that house.

Contrary to popular opinion, that formula does not generally work in reverse. If you do enough research you’ll find out it occasionally works. So sites like Zillow or Realtor .com are occasionally correct – with about the same frequency of how a stopped watch is correct twice a day. If price per square foot was a valid formula, Zillow would be correct almost all the time.

Unless someone is certified as an appraiser, or does development, throwing out statements regarding the Price Per Foot — makes it seem like they know what they’re talking about.

Historically 67% of the housing inventory sells and about a third doesn’t. The list price – sales price ratio is usually about 97.5%. So it’s logical to assume that experienced agents DO know how to price a home and that is a correct assumption. These agents are experts at finding and setting the correct market value.

Experienced agents and appraisers know that single story homes are worth more than similar two-story homes and may never be used as a “comp”. They also know that the larger the home, the lower the price per square foot and the smaller the home the higher the price per foot and if the difference in size is greater than 20% the other house may never be used as a comp.

You can probably see just from these data above why Zillow (and all the others) are almost always going to be wrong.

What’s interesting is if you ask almost any agent 𝗛𝗢𝗪 they arrived at their answer you typically get a response that ultimately amounts to, “It’s a knack I have”. They KNOW how to do it but cannot easily teach it because they will attempt to use price per foot and when that “doesn’t seem right” because they know better — they then “make adjustments” to arrive at the correct price.

What each of the competent agents is actually doing is 𝗟𝗢𝗢𝗞𝗜𝗡𝗚. They are taking into consideration the supply and demand for that neighborhood so they can determine if the subject property should’ve priced above, in line with, or below the “comps”.

I taught a class on how to properly price a home some years ago. Unfortunately, the video is no longer available. A friend of mine John Wake, has a PhD in economics. John was in that first class I taught that was videoed. John took highly detailed notes and those notes are still available.